Don’t Panic: Nick Bruining busts the ‘$1m retirement’ myth and shows you how to live well on so much less

The West Australian

Tuesday, 30 October 2018 8:51AM

Tips to get your retirement right

The West Australian

VideoFinancial adviser Nick Bruining's new book 'Don’t Panic' is set to help retirees get it right.

Have you heard the one about needing more than $1 million in your nest egg to enjoy a “comfortable” retirement?

Convinced that you are going to have to sell the family home and live in a tent, probably dying in an alleyway after selling your final Big Issue?

You are ripe for the picking by an investment “professional” who can show you how, with “minimal risk”, you can get close to the magic million you need to retire comfortably.

Financial advisers, superannuation funds, real estate spruikers and self-managed super fund promoters usually get paid according to how much they get you to invest.

That’s why they will never tell you that a couple with $270,000 in superannuation and savings can easily:

Generate an after-tax income of $48,000 a year

Have it indexed for life, using lower-risk strategies

Still have funds for travel and other “fun things”.

Here’s how it works

Let’s use the example of soon-to-be retired couple Malcolm and Lucy, who own their own home in suburban Sydney.

They are both a few weeks shy of their 65th birthdays and have managed to build their super up to $225,000 and have a further $40,000 in a term deposit. They keep $5000 in their day-today transaction account.

With their super and cash, a house worth $900,000, a newish Nissan X-Trail, Jayco caravan and the usual household items that you accumulate over the years, Malcolm and Lucy figure their total worth is $1,342,000.

No way that a millionaire couple will get a pension right?

Wrong. When calculating how much of the age pension Malcolm and Lucy get, Centrelink ignores the value of the family home (which is exempt) and takes the fire sale value of everything else.

The X-Trail was $32,000 new but on carsales.com is worth $24,000. Their furniture and appliances may be insured for $150,000 but would fetch $10,000 on Gumtree.

Camera IconNick Bruining’s revised and updated version of Don’t Panic shows you how to do more with less in your nest egg. Credit: Iain Gillespie

Once those discounts are factored in they only have $316,000 in so-called “assessable assets”. A homeowning couple can have up to $387,500 in assets and still get the full pension and Malcolm and Lucy’s $316,000 is well under that.

There’s one more problem though — Centrelink also applies an “income test” to pension applicants. A couple like Malcolm and Lucy can earn up to $304 a fortnight from investments such as superannuation and term deposits and still get the full pension.

Centrelink estimates that on their super and savings of $270,000, Malcolm and Lucy will earn $288.46 a fortnight — under the income-free limit.

They get a full age pension of $1381.40 a fortnight.

Knowing they have that pension income guaranteed, Malcolm and Lucy structure their investments to make up the shortfall and guarantee themselves a fun, stress-free retirement.

They cash out $50,000 from Malcolm’s super. Because he is over 60 there is no tax to pay on the withdrawal.

They reckon they want to go on the big trip to Europe next year and are going to go business class so put $25,000 from their old term deposit into a new one.

They put the $15,000 balance, plus Malcolm’s $50,000, in a super fund in Lucy’s name. There are no specific tax, Centrelink or other benefits but it does mean that Lucy has ready access to cash if something happens to Malcolm.

Now to make sure the taxman doesn’t ruin their golden years! To ensure their money stays theirs, both their super nest eggs are converted to account-based pensions, which means everything they draw down using is completely tax-free.

They direct their account-based pension provider, which was their super fund, to invest 90 per cent of the money in the conservative option and they keep 10 per cent in cash.

Account-based pension rules dictate that a couple who are 65 must draw down at least 5 per cent of their balance (the government wants us spending our money in retirement!), which on their combined $240,000 is $12,000 a year. To make budgeting easier they elect to receive that at $462 a fortnight — $125 from Lucy’s account-based pension and $337 from Malcolm’s.

The $462 a fortnight from their own super plus $1381.40 from the age pension brings their fortnightly income to $1843.40. That’s $47,928.40 a year. The holiday fund term deposit will contribute a further $350 for the year, tipping them over $48,000.

So, with $270,000 Malcolm and Lucy can:

Live on $48,000 a year — equal to a before-tax salary of about $60,000.

Have that income indexed for life so inflation won’t crimp their style.

Afford to go on their trip of a lifetime.

Qualify for the Pension Concession Card, which means they pay no more than $6.40 for PBS-medicines scripts.

Ensure Lucy has cash available in case something happens to Malcolm.

Wake up each morning knowing that if their super fund beats their 5 per cent drawdown rate, which is probably will, they will end up with more money after their first year of retirement than when they started.

Sleep well at night knowing their money is invested very, conservatively.

Learn how to make your nest egg work harder for you

Three years after his first book ran off shelves as readers were drawn to his no-nonsense brand of advice, Nick Bruining’s fully revised and updated edition of Don’t Panic: More reasons you don’t need $1 million to retire well is now on sale at leading book stores and newsagents for $29.95.

What you will learn from Nick’s new book:

How a couple with $270,000 in super and savings can retire on $48,000 a year — tax free

How to make sense of your super statement and know you aren’t getting ripped off

Nine ways to boost your super

How a couple can earn $92,000 a year and still get some of the age pension